Is This the Best Real Estate Investment Today?

America’s malls and big box dungeons are emptying at a rapid pace. Commercial real estate would appear to have problems, but there are silver linings in certain areas of the market. The Wall Street Journal’s Esther Fung writes:

E-commerce has been blamed for the struggles of retail real estate, but is proving to be a boon for owners of data centers and cell towers.

As more people consume digital content and make purchases online, landlords and owners of data centers and cell towers that house cables and beam data to smartphones are looking to expand faster.

The moves show how technology is creating numerous winners in real estate even as it disrupts traditional industries such as retailing. While mall owners face growing pressure from the rise of e-commerce, for example, the increase in web activity is fueling demand for wireless infrastructure and racks of telecommunication equipment that need to be stored somewhere.

“Technology innovation has impacted a lot of the real-estate asset classes.

Cell towers are the main platform of the digital economy, said Crown Castle Chief Executive Jay Brown.

“It’s very similar to railroad tracks and toll roads,” he said.

Executives at these REITs said they are fielding more queries about the possibility that advances in technology could make them obsolete, how long leases typically are—around 10 to 15 years—and whether there are high barriers to entry.

One of the biggest myths is that you can just set up a facility and expect customers to come,” said Gary Wojtaszek, chief executive of CyrusOne, a Dallas-based data center REIT. It takes time to build relationships with customers, he said, adding there are both build-to-suit and speculative construction of data centers.

“Data growth has been exponential and more than offset the efficiencies that the cloud has enabled,” said Laurel Durkay, associate portfolio manager of real-estate securities at asset manager Cohen & Steers. She expects data centers to see an annual growth in demand of 10% to 20% in the next five years.